White House Considers Plan to Convert Foreclosures to Rentals

Landlords and property managers are responding to news that the Obama Administration is considering taking over a stockpile of foreclosures, and converting these properties to rental housing.

Many, like veteran property manager Wallace Gibson, CPM, say it was only a matter of time before the government would step in and try to fix the battered housing market.

But is becoming the nation’s landlord such a good idea?

One initial reaction to the plan is fear that this housing will end up Section 8 controlled. Not that anyone is against creating affordable housing for the scores of families who need it now, but because of one undeniable reality about Section 8–once a property is occupied with tenants, it will be virtually impossible to get it back on the market, or for a buyer to convert it away from affordable housing. And that has consequences for investors. “These homes will never be resold once tenants are in place,” says Gibson. “This will allow the government to create yet another entitlement program.”

Others are concerned how the federal government will be able to manage such a colossal undertaking. “I was around during the Resolution Trust Corporation, and received many solicitations for me–a woman-owned business, to bid on the management of these government-owned properties, Gibson explains. ” The paperwork was horrendous just to be considered for management. This allowed for many scams in management, rent-skimming and repair overcharges. Taxpayers will ultimately pay for this poor service just like they have with the deteriorating government-owned subsidized housing stock.”

Gibson also remains skeptical about the financial maneuvers required to affect the takeover. “These properties are currently carried on the books of banks and mortgage firms,” she explains. “Somebody will need to pay some value for these assets before they can be utilized in this way. Guess who pays? Guess who gets paid?”

There is also the fear the plan will drag down property values in neighborhoods. Gibson cites instances where, without the pride of ownership factor, entire blocks have been razed.

A government take-over of these inventories is not the only solution to this dilemma. The government could look at ways to entice long-term investors into buying the properties, putting some money into repairs and upkeep, and creating more private rental housing inventory for the increasing number of people who need it. These investors often possess property management experience, or can hire a private manager to oversee individual properties more effectively than the government could collectively.

Recent foreclosure inventory reduction plans have been designed to encourage homeownership, even to the detriment of interested investors. But with new reforms taking financing off the table for many, and a shift in sentiment that now favors renting over homeownership, those plans do not appear to be working.

Wallace Gibson, CPM, GRI, is the owner/broker of Gibson Management Group, Ltd., a full-service property management company offering 45 years of professional property management services for investment property owners in Central Virginia“Charlottesville, Fluvanna, Louisa and Greene counties. Her firms website is http://VaHomes4Rent.com and she blogs at www.propertymanagementmaven.com.

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And what happened to the TARP funds that were supposed to buy thes “toxic” assets?

Amy Haught

I am an investor/landlord who owns 11 single family homes, I manage each one from acquistions to lease inception. Each home is currently rented. I take care of my properties, I drive by each one at least once a week during the summer months to make sure they are maintained (grass mowed, bushes trimmed, no trash or debris visable) . I hand out my card to neighbors who live nearby my properties in case they need to call me if they are concerned about any suspicious activity involved with the tenants who reside in my properties. I emphasize communication between myself, the landlord, and the tenants in case their are any issues with maintainance or rent payments. I take great pride in knowing I have worked diligently to find qualified tenants and that my homes are well maintained and taken care of. Considering the way the Government has conducted inself over the last 10+ years, allowing government acquistion of foreclosed properties would be disastrous. As an investor, I refuse to buy properties located anywhere near Section 8 housing. Section 8 devalues nearby communities. I’ve seen it first hand where one of the homes I purchased resides about 2 miles away from Section 8 housing. The properties are deceivingly beautiful outside but the crime rates in and around these areas have increased triple-fold not to mention the homes located closer to these section 8 properties which cannot sell. The Government can’t run itself properly and efficiently (hello?–Fannie Mae, Freddie Mac) why would we believe they would be efficient as landlords?

How can my Management company get on the governments plan to convert foreclousers to rentals. Im in !

Jim

We do not need any government competition in rental business. It is tough enough keeping properties rented, then you through on government rentals. WOW!!!!

Instead of converting the properties to rentals, by government, Establish some incentatives to get the private investors to buy the properties. I have 6 single family residences that stay rented and can not buy anymore. Loan money is not available, especvially for properties that need $5,000 to 10,000 to get them rentable.

Diana Parker

This is socialism at it’s finest folks. The housing market will be in shambles and private landlords will have trouble renting their houses in this environment. There is a similar set up in England and private enterprise does not fare well against it.

So we have basicaly ruined everything that was America….to the American dream of home ownership to affordable housing for those who DO NOT qualify for Section 8.

I own private single family homes and there is a low profit margin if they are rented right–of course I did not buy my properties in this environment, either.

Mark my words, what a mess.

Jill

WOW to the naysayers and for the condemnation of those that are less fortunate.

Section 8 families are just like any other family. They want to keep their family together and establish themselves in a neighborhood. They don’t want to keep moving. So contrary to what people think they won’t tear up a home because they know that the home has to pass inspection every few months. If it fails inspection then they have to move and uproot their family. Think about if you had to uproot your family due to a failed inspection every year.

I have also received countless calls from folks who are Section 8 Voucher holders who have received foreclosure papers because their landlord has pocketed the rent money and not paid their mortgage. On that note there needs to be better oversight of the program. But don’t condemn it because in most cases it works and it helps.

I think that this is a good idea and I look forward to hearing more about it.

Jes

We have had so many problems with section 8 recipients that we have considered stopping participation in the program.

Clark

I can tell you personally that if the government floods the market with low rent housing, I will be adding to the foreclosure list and out of business.